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"No vacancy" sign hangs over Downtown Toronto office market

Cushman & Wakefield fourth quarter 2016 office stats show that large blocks of space have run out in a dynamic market that has reached an eight-year vacancy low

TORONTO, ON--(Marketwired - January 16, 2017) - Downtown Toronto's office market continued to outperform expectations in the fourth quarter of 2016 -- a refrain that has now resounded since 2009 when the first building opened in what's become a sustained office building boom. According to fourth quarter results released by Cushman & Wakefield today, available space has plunged to an eight-year low of 4% in spite of the flood of new space that has completely altered the city's skyline. The last time availability hit this rock-bottom low level was in 2009 -- when the development cycle that started in 2006 kicked into high gear.

In this tight market, which at 72 million square feet (MSF) is by far the largest office market in Canada, companies that are seeking blocks of space larger than 300,000 square feet (SF) are now faced with "no vacancy" and are having to wait for new development relief or change their occupancy strategies. If looking for sizable space in the fringe markets surrounding the downtown core -- which now have a 2.9% vacancy rate -- companies of all sizes are almost out of luck.

"Toronto's downtown is one of North America's most powerful growth markets," says Stefan Teague, GTA Executive Managing Director & Market Leader for Cushman & Wakefield. "Year after year we've wondered when the bubble will burst and it simply doesn't. 2016 was another bumper demand year and we have a large pipeline of clients wanting to occupy significant space in proposed towers in 2017 and well beyond."

Since 2009, 8.3 MSF of office space has opened downtown -- with many of the new office towers transforming fringe markets such as Downtown South. Remarkably, some 2.1 MSF of space was absorbed in the past two years by expanding, relocating and new companies. That breaks down to an average of 300,000 SF a quarter. To put this in context, the quarterly average absorption for Toronto over the most recent five-year period was 157,000 SF, showing how accelerated demand was in 2015 and 2016.

While many sectors are expanding, demand from technology, big data, e-commerce, software, and information systems companies has been particularly strong.

As for larger blocks of space, at year end, there were only eight availabilities left of blocks over 100,000 SF, compared with 14 options at the same time in 2015.There are zero availabilities in existing buildings for tenants seeking 300,000 SF and over.

So, will new office towers set to open in 2017 bring relief? The answer is very little: 1 York Street, at 794,000 SF, is 100% preleased; The Globe & Mail Centre, at 484,000 SF, is 93% preleased, and the 906,000-SF EY Tower is 87% preleased.

"With the downtown's vacancy in the same place, at 4%, as it was in 2009," said Teague, "I think it's pretty obvious that we'll hear about more building announcements in 2017. Downtown Toronto's growth has been phenomenal on both office and housing sides -- and we only see increased momentum at this point."